Scenario for 2 questions

In auditing the accounts receivables, Schmidt, CPA, will use statistical sampling to evaluate whether there was proper authorization for shipping the goods to customers. Schmidt determined the parameters for the test of controls Internal

Control Test Work Assessment

Risk of assessing control risk too low---5%

Tolerable deviation rate----6%

Expected deviation rate----2%

Sample size ---75 customer invoices

Audit procedure: Inspect invoice for proper authorization

Questions

1.How will the sample size for the attribute sampling change if the risk of assessing control risk too low is revised to 1%?

A.Decrease

B.Increase

C.Stay the same

2.In evaluating the invoices for proper authorization, Schmidt determines the sample deviation of 2.5% and the calculated allowance for sampling risk is 3%. What conclusion should Schmidt draw from the results of the test work?

A.Controls are operating effectively

B.Controls are not operating effectively

C.This will not affect the evaluation of internal control

3.Which of the following is TRUE about the auditor's tolerable rate of deviation?

A.It is compared to the expected deviation rate in forming conclusions about the operating effectiveness of the internal controls.

B.It is compared to the sample deviation rate in forming conclusions about the operating effectiveness of the internal controls.

C.It is used in drawing conclusions about the operating effectiveness of the internal controls.

D.It is the maximum error that can exist in an account balance or class of transactions without causing the financial statements to be materially misstated.